“At various times in the life of a company there are going to be requirements for outside capital in order to grow the business. Choosing which type financing vehicle is best for your company is very important. Deciding whether to seek equity capital or debt financing is the first step. Usually companies trying to get equity capital are very early stage with little or no real assets, while companies on their way to a steady growth curve use debt financing.”

Roger Ehrenberg is the founder and Managing Partner ofÂ IA Ventures and he recently wrote this article about how to fund a start up.

Bootstrapping. Friends & Family members (F&F). Angels. Venture investors (VC). These are each viable â€“ and even appropriate â€“ ways of financing your start-up. The question is: which is right for you? There are no easy answers, to be sure. But one thing is certain; angels and venture investors look at early-stage investments through different lenses, and it is important for the entrepreneur to understand the distinction. Further, this is an assessment that often has to be made multiple times, as early-stage F&F and angel-backed companies should or perhaps should not raise VC funding based upon a variety of factors. Choosing the wrong financing strategy can have a profound impact upon the success or failure of a start-up, and given how hard it is to be successful getting this right is hugely important and certainly worth the time to analyze, reflect upon and plan. It is absolutely critical for the entrepreneur to be brutally honest with themselves and unambiguous and candid with their potential investors.

Once a serial entrepreneur, always one – Kirill Sheynkman has a blog Passionate Intensity where he is writing a series about getting through the Venture Capital process. It’s a chain of blog posts that illuminates both the view of the investors and what should be expected from the entrepreneur. The first installment is called “Getting funded: Step 0, Prepare.” Having experience on both sides of the table Kirill is well placed to describe what to expect. You can continue the thread of posts at the bottom of each one. Since it is still ongoing, be sure to bookmark where you leave off. You may also follow him @sheynkman

There is a distinction between different types of equity investors. Knowing the difference between Seed, Angel and Venture Capital is critical to working with and marketing to them.

Seed capital is commonly known as â€œfriends and familyâ€ investment. These are typically individuals who know you well and believe in your idea. They invest small amounts of money to help keep the idea alive while the founders are working feverishly on giving the concept a life. For the most part, the seed investor is not a professional investor and the entrepreneur should be particularly careful how they structure the arrangement so thereâ€™s no impediment down the road when seeking other forms of investment.

So with Angel investors, begin with the most important attribute which is â€“ are they truly professional accredited investors. Only work with professional investors who know how to manage the transaction fairly. Angel investors have various motives and drivers that will get them to become a partner in a company. â€œA strikingly well-researched and elegantly written bookâ€ is Finding Your Wings by Gerald Benjamin.

Unlike angels who work independently, Venture Capital Funds are managed by a team of people who answer to shareholders. The VC group goes out and raises a Fund themselves, targeting a specific mission. By the time a potential investment is being considered, there is a council of voices that must be attended to and reasoned with. So the experience is much more institutional, with layers of process. Obviously smaller VC funds are more streamlined, but for the purposes of this discussion the difference between working with an Angel and a Venture Capitalist is generally individual versus group and smaller versus larger size of the investment.

Venture capitalist Fred Wilson sets out to provide his views of the different legal structures a business can fall under. Different structures provide different advantages for taxes, liability and ownership matters, so entrepreneurs need to know their priorities when choosing an S corporation, limited liability company or other entity. His blog post ends up being a wonderful discussion in the following comments section. Remember his emphasis is on the potential for investors to join the entity.

It should be noted there is a distinction to be made regarding equity investors. Knowing the difference between Angel investors and Venture Capital is critical to working with and marketing to them.

With Angel investors the first very important attribute should be â€“ are they truly professional accredited investors. Only work with professional investors who properly know how to manage the transaction so that it does not encumber further investment down the road. Angel investors have various motives and drivers that will get them to become a partner in a company. A good book that goes into this is Finding Your Wings.

Unlike angels who work independently, Venture Capital Funds are managed by a team of people who answer to shareholders. The VC group goes out and raises a Fund themselves, targeting a specific mission. By the time a potential client is being considered, there is a council of voices that must be attended to and reasoned with. So the experience is much more institutional, with layers of process. Obviously smaller VC funds are more streamlined, but for the purposes of this discussion the difference between working with an Angel and a Venture Capitalist is generally individual versus group.

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